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Sticks and Carrots in Procurement

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  • Maria Bigoni

    (University of Padua)

  • Giancarlo Spagnolo
  • Paola Valbonesi

    ()
    (University of Padua)

Abstract

We study differently framed incentives in dynamic laboratory buyer-seller relationships with multi-tasking and endogenous matching. The experimental design tries to mitigate the role of social preferences and intrinsic motivation. Absent explicit incentives, effort is low in both tasks. Their introduction boosts efficiency substantially increasing effort in the contractible task, mildly crowding it out in the non-contractible one, and increasing buyer surplus. Bonuses and penalties are equivalent for efficiency and crowding-out, but different in distributional effects: sellers' surplus increases with bonuses as buyers' offers become more generous. Buyers tend to prefer penalties, which may explain why they are dominant in procurement.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0105.

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Length: 41 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:pad:wpaper:0105

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Keywords: bonuses; business-to-business; contract choice; experiment; framing; explicit incentives; incomplete contracts; loss-aversion; motivation; penalties; procurement; multi-tasking; relational contracts; rewards.;

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Cited by:
  1. Hoppe, Eva I. & Kusterer, David J. & Schmitz, Patrick W., 2013. "Public–private partnerships versus traditional procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 145-166.
  2. Daniele Nosenzo & Theo Offerman & Martin Sefton & Ailko van der Veen, 2012. "Discretionary Sanctions and Reward in the Repeated Inspection Game," Discussion Papers 2012-10, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

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